The Situation
The clients, married with three grown children, worked as an office manager and an IT specialist, earning about $90,000 and $80,000. They had agreed to buy a business generating more than $400,000 a year in net income, with roughly $750,000 of inventory and a customer base built over almost forty years, at a substantial discount from owners who were retiring. Two weeks earlier a major bank had refinanced their home with a new first mortgage of about $1 million, paying out the previous mortgage and line of credit.
The Challenge
The appraisal for the second mortgage came back at about $1.78 million rather than the $2 million or more the clients expected. The gap traced to the assessment: the land portion had been assessed well below every comparable parcel on the street, an apparent error, and the appraiser leaned on it. The deal needed the full $415,000 regardless, salaried incomes alone could not carry a business purchase at bank ratios, and the business income did not exist yet on paper because the clients did not own it.
The Solution
We presented the file to several private lenders with the assessment discrepancy documented and asked for the full amount at 80% loan-to-value, on a one-year closed term, with the fee held down even at the cost of a higher rate. A private lender advanced the second mortgage of about $415,000 behind the bank's first, on a 35-year amortization to keep the payment manageable, with the exit written into the file from day one: once the business was theirs and producing income, refinance the first and second into one mortgage with the bank or an alternative lender.
The Outcome
The purchase closed. A year later the business was debt-free and producing about $450,000 of net income, and the exit happened as planned: the first and second mortgages were folded into one three-year mortgage with an alternative lender, which is the next case study. The private second was a bridge, priced as one, and it did the one job it had: close the deal the appraisal nearly broke.